Morningstar ETF Invest: Gold Stocks Get You About 50% the Move in Gold’s Price

By Brendan Conway

Investors who moved into gold-mining companies’ stocks in hopes of capturing or magnifying the move in gold’s price should hear the figure from Ned Davis Research’s John LaForge at this year’s Morningstar ETF Invest conference.

About 50% of the price moves in gold-miner stocks reflect moves in the price of gold over the long haul, according to LaForge. The other 50%: You’re getting the stock market.

“The 50-50 is actually pretty high,” LaForge says. In oil stocks, it’s more like 30% to the commodity. Lately, LaForge adds, the tie to gold’s price has been closer, but the long-run pattern is about even. That’s something to keep in mind if you own Market Vectors Gold Miners ETF (GDX) or Market Vectors Junior Gold Miners ETF (GDXJ).

So if you’re buying gold miners in hopes of an amplified bet on gold, you might get that. But the historical odds are against it.

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OCTOBER 3, 2013 4:14 P.M.

Berkeley Maven wrote:

I'd like to see Mr. Laforge's data on that; what is his long-term timeframe? What securities is he using as proxies for gold and gold mining stocks? According to Morningstar, GDX has very low positive correlation to global stocks over the last three to five years. if you look at a chart from the market bottom in Oct 2008, you see that GDX has amplified the moves up and down in GLD to date. Fundamentally, commodity production companies are leveraged to the price of the commodity, unless they are hedging. So I'm scratching my head here.

OCTOBER 17, 2013 10:17 A.M.

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Chris Dieterich has covered the U.S. stock market for The Wall Street Journal and Dow Jones Newswires. He is a graduate of Regis University and the Missouri School of Journalism.